Business isn’t Zero Sum

In any negotiation, you can assume a win-win solution or a zero sum outcome. “Win-win” is defined as when both parties come out ahead or achieve what they seek. “Zero sum” is when the premise behind negotiation is that whatever one party achieves equals a loss for the other.

Liberal economics (not the left-wing kind of liberal, the open-markets type) assumes that most trade is win-win.  For example, cheap Chinese labor and government subsidies allow working class Americans to walk around with powerful pocket computers (their smart phones). Who enjoys the greatest economic benefit?

Certainly the many thousands of Chinese workers enjoying a newly middle-class lifestyle are better off. So are the manufacturers and marketers (such as Apple) who profit as the middle men. But win-win economics argues that the value to everyone in the product pipeline pales in comparison to the economic stimulus of instant communications, Internet shopping and access to unlimited information.

On the other hand (a favorite phrase of economists everywhere), to the unemployed American worker who presumably would be making that phone, albeit at a much higher cost; it looks a lot like a zero-sum proposition.

When Wal-Mart began buying in China, economists calculated the net savings for Americans as equal to a 1% drop in the cost of living nationwide for the next several years. The millions of working class Americans who poured into Wal-Mart stores for cheaper goods might be shocked at an accusation that they were putting their neighbors out of work, but it was true.

Business is Win-Win

We accept win-win in business every day. You know that your vendor is profiting on what he sells you; that’s how he stays in business. You fully expect to profit from selling your goods and services. The people who buy them expect a benefit in proportion to what they spend, or they wouldn’t do business with you.

You pay your employees more if they are productive, meaning that in return they make you more money. Employers who worry that every dollar they pay in wages is one less in their pocket don’t attract top personnel, and usually don’t thrive in business.

The assumption that everything is zero sum is not only wrong, it is stupid. The political, social and business  landscapes can’t function on a premise that anything good for one party is automatically terrible for the other.

Allowing American companies to fill positions for which they can’t find Americans keeps them growing. As a point of information, those seeking H1B worker visas for technology workers can only do so if they have advertised the job to Americans, interviewed all qualified applicants, published the compensation, and agree to pay the same compensation whether the job is filled by an American or a guest worker. Those are the current requirements.

Saying that every guest worker has stolen an American job is ridiculous. Just as ridiculous is the claim that any controls over firearms leads inevitably to troops bashing down your door for general confiscation. So also is the position that every social safety net creates dependents who will mooch on the taxpayer for generations. Along with that put the premise that all foreign trade is evil because someone profits from it.

A Zero Sum Business

Let’s try running your business on zero sum assumptions. Set the amount you wish to pay for each expense item on your P&L. Determine your sales price for maximum profit. Then post wages that will get you the most return on your employees’ labor.

Now, announce that under no circumstances will you vary by one penny from what you want to pay or charge. Tell everyone that you aren’t in a position to lose anything just so they can win. Your vendors, customers and employees can take it or leave it.

Good luck.

Your Exit Map: Navigating the Boomer Bust is a fully-illustrated look at the impact of Baby Boomers on small business ownership, and what their options will be for transitioning companies.

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One Response to Business isn’t Zero Sum

  1. Mike Wright says:

    Very good points. Unfortunately we have become very short term and self centered thinkers. Those with the greatest economic or political power will do what is necessary to gain and retain their control. This creates sub-optimal binary states that we fluctuate between rather than making long term gains for all.

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